Foreign direct investment in the Mexican steel industry

Samuel Ortiz-Velásquez

Chapter 8 in Capital Movements and Corporate Dominance in Latin America, 2021, pp 120-139 from Edward Elgar Publishing

Abstract: The chapter examines the determinants of investment in the Mexican steel industry at the industry and company level. It is argued that investment decisions in large companies, commonly involving foreign direct investment (FDI), respond predominantly to microeconomic factors, while smaller companies mainly face macroeconomic restrictions. As the multinational company (MNC) reaches out to the most dynamic and high-barrier-to-entry segments of the steel industry, investment in the Mexican steel industry could be seen as an extension of the global steel industry.To address the hypothesis, a review of the theoretical and conceptual bibliography on the determinants of investment is included, followed by a statistical exercise based on the 2019 Economic Census (EC) and four case studies of MNCs operating in Mexico: Ternium, Tenaris Tamsa, Gerdau Corsa and TIM. The results indicate that the permanence in the market and/or expansion of the smaller company, typically located in the rolling and finishing segments, responds predominantly to the dynamics of the domestic market and the lack of credit, while investment in large companies, typically located in the production and casting segments, respond to microeconomic factors linked to high industrial costs (raw materials and inputs), high taxes and a workforce with little experience. The case studies of the four foreign affiliates suggest that investment is mediated by the rate of return and that it is influenced by factors such as: i) market size, exports and competition from Chinese imports; ii) the degree of monopoly, since, being an industry of scale, MNCs seek to increase their market power and thus their margin; iii) economic innovations developed in industries with which they are linked vertically forwards such as construction and automotive; iv) various strategies to face competition from Chinese imports, to deal with section 232 in the United States, to develop suppliers and to train the workforce.

Keywords: Development Studies; Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2021
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